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VC Stabilizes Amidst Months Of Bubbles

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November 2
6:00 AM 2016

After about nine months of irrational exuberance followed by roughly six months of equally as irrational disconsolation, venture investors have gotten their groove back. That's the conclusion lawyers from Cooley LLP are drawing from their latest analysis of the state of the venture market these days.
The firm latest report illustrates that venture investments are coming down from their 2015 trend lines.

Babak Yaghmaie  said in an interview, "Ample deals are getting done. But it isn't frothy. The froth is gone. It's a very healthy, very rational market."

He also attributes the stabilization in part to a retrenchment on the part of later stage investors who have by-and-large left venture investing after coming in and wreaking all kinds of havoc last year.
So early-stage venture backed companies were raising large amounts of cash on the back of later stage investment rounds that were themselves being inflated by an overly enthusiastic public market which was gobbling up tech stocks.

If the deals or investments will stop in public markets, and investors either retreated to safer types of investments than technology companies or woke up to the over-inflated valuations of those companies relative to their short-term growth prospects, the public market declines impacted private market valuations.

The exuberance of 2015 really came with the revaluation of Fidelity Investments private company portfolio just about a year ago. Dan Primack had a great explainer on the impact Fidelity's moves could (and did) have on the private markets for tech stocks.
The Cooley partner also dismissed that large spike in late stage funding as the result of a few monster deals that hadn't been disclosed yet, but were skewing the numbers.

The Cooley partner thinks that 2017 will see a significant thinning of the unicorn herd as some companies are forced to run through the IPO window will see their horns knocked off - if they can even get through. He says, "many of these companies have the runway and the balance sheet to execute to the metrics that the public markets will require in order to pay the prices they need to command to continue to support the valuation that they've raised at."

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